What you can and can’t include when claiming expenses for your business can be a bit of a minefield, here are a few pointers to stop you getting into bother with the good people at HMRC:
Are you throwing money away!!
Every single receipt is precious for a small business. You don’t need a personal assistant or super duper high tech software in order to keep good records, you just need a system that works for you.
At the very, very minimum you need somewhere specific to put all your business receipts each day so they don’t go through the wash in your trouser pocket. Your system needs to be something that makes it really easy for you and fits with how you prefer to work. The less effort involved, the more likely you are to be successful.
Not claiming “use of home as office”
Whether you work entirely from home, or just do your invoicing from the kitchen table, you can claim an element for use home as an office in your business expenses.
How much you can claim depends on whether your are a sole trader or a limited company and also on your particular business set-up. Answering emails, social media or invoicing customers in the evening still counts as use of home if you are doing it on a regular basis. You just need to be honest about how much time you are spending.
Claiming motor AND mileage allowances
There are two ways to include the cost of your business motor expenses. You are allowed to use either the full cost method or the mileage method. Which method to choose depends on the type of journeys you are making and whether you’re a limited company or sole trader.
Including your daily commute – You can’t include any expenses for your journey between your home and base of work as this is considered to be part of your ordinary commute. Other travel outside the ordinary commute is generally allowed provided it is “wholly and exclusively” for business.
The tax rules for limited company directors are slightly different than for sole traders as a director is considered to be an employee of the company.
Claiming for clothing
Are you putting clothing through your business that is not allowed? You will be surprised how little you can actually include.
The only items of clothing you can safely include are protective clothing required for your work (high-vis vests, safety boots etc), uniforms, (beautician’s tunic, nurse’s uniform etc) and your costumes, if you are an entertainer.
Anything that could be part of your everyday wardrobe is not allowed as a business expense. However, there is a bit of a grey area around clothing that has had a company logo put on. Company directors have some extra complications around clothing as a taxable benefit.
Food is not allowed
In general food is not a business expense because everyone must eat to live. However, there is recognition that meals while out and about traveling can end up costing more and so these are allowed.
You can include expense for food and drink during the day on journeys that are outside the normal pattern of work, as part of necessary travelling in the course of the job. You can also have your dinner and breakfast when staying overnight for work.
You are not allowed food and drink at your home base, on your normal commute or as part of the normal pattern of work. There are also some special complications for contractors on long-term projects.
Entertaining is providing hospitality and entertainment for customers, potential customers and other people. It’s often food and drink but could include event tickets as well as accommodation, use of the company yacht, gifts and free samples.
The only entertaining that is allowed for tax purposes is entertaining staff, such as a Christmas party. Even then there are strict conditions around what is allowed before it becomes a taxable benefit.
Including personal spending
All expenses have to wholly and exclusively business. It is really, really important to keep personal spending separate because it’s just not worth the risk if you get a tax investigation.
If you’re still unsure about claiming expenses or need more advise get in touch, we’re always happy to talk business, call 07957 245 760 or e-mail us on firstname.lastname@example.org